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Coping With India

One of the fastest growing global markets, India has it strengths and its challenges

Pradeep Vachani, Jaison Augustine | Jul 01, 2008

Outsourced Logistics asked Pradeep Vachani and Jaison Augustine to comment on the business realities of operating in India. Speaking from their offices in India, they addressed people and skill levels, physical infrastructure and the regulatory and business climate.

Given the history of India with the legacy of the British, the English education system and English language, skills are very high, with a large number of people who are educated in English and also a large group for whom English is a second language. So, there is a large talent pool of college-educated people with English skills.

Logistics is a niche skill which is not as widely available at a university level in India. Unlike wellknown universities in China, the UK and the US, India doesn’t have universities with a heavy focus on the field. Most of the education takes place on the job. To some degree, that impedes professionalism in the logistics business.

Expatriate Indians with logistics skills aren’t coming home in very large numbers If they are coming back with higher education in the field, they aren’t a very visible group in the industry, perhaps due to the size of the market. There are three or four good educational institutions in India providing logistics training, but given the size of the market, it’s inadequate.

It’s still a sunrise part of the industry, so in terms of using India as a back office for logistics, it lags behind. The National Association of Software and Services Companies (NASSCOM) has flagged logistics as a target area because they view the lack of formal education as an impediment. It’s not that there isn’t some supply, it’s just inadequate for the size of the demand.

From a logistics perspective, India lags behind, which is surprising given that logistics is a $100 billion industry expected to reach $120 billion by 2010.

India has 20 million expatriates living outside India, and 2.4 million of those are living in the US. They tend to be on the higher levels of education— professionals with good management skills.

Physical infrastructure is probably one of the most hotly discussed areas and is probably India’s biggest opportunity and it’s biggest problem area. Core to the success of smooth logistics operations is having a network of roads that interconnect the cities and ports. Roughly 60% to 70% of goods move by road in India. That’s where India has had its biggest challenges. That doesn’t mean there hasn’t been positive progress. The government embarked on a project called the Golden Quadrilateral centered on four metro cities of New Delhi in the North, Mumbai in the West, Chennai in the South and Kolkata in the East. This is where the commerce and trade takes place. Except for New Delhi, they are free ports.

The government embarked on a project to connect all of these cities with four- to six-lane highways. This will facilitate trade and access to the ports. The average speed of a truck carrying cargo is about 20 kilometers per hour, which means they cover about 200 km in a day. That’s probably one third or even one fourth of what can be done. That imposes a huge burden of inefficiency on the system.

From the mid-1950s to now, traffic or density of vehicles has grown by as much as 100 fold and the roads have grown eight fold. The road building and the Golden Quadrilateral nearing completion will give a huge boost to the economy in general.

Technology and telecommunications infrastructure, as a result of India being a late starter, now surpasses China as the fastest growing cellular telephone market, with more than 300 million users. The telecom infrastructure has improved dramatically. India may have started late, but the quality and customer service on its nearly completely digital networks is very high.

India was an early adopter as far as IT is concerned. There was a good fit for the skill sets and the education Indians received, and it has become the calling card for India’s success.

In general, since about 1991, Indian law has been slowly but surely removing some of the requirements for operating a business. Whether that is deregulation in the telecom industry or relaxation of duties on imports or requirements on foreign direct investment, all of that has been happening.

India has made a lot of progress in these areas but there are some remnants of the past draconian regime in the complex mesh of taxation which is controlled by the central government and partly by state government. If you are moving goods from one state to another, you get entangled in all of that mess. There is a move to get rid of all of these taxes that get imposed on cargo moving from one point to another. Discussion centers on going to a common value-added tax (VAT), but that’s easier said than done. India may be slow in implementing it, but it appears to be headed in that direction. It will be a welcome move for companies that operate in India.

There were measures that made it difficult to repatriate monies out of India, especially in a business like logistics where a company may be collecting revenues in India, but in an international transaction, all that would have stayed in India would be the expenses incurred there. It used to be a challenge to repatriate the rest, but now the Central Bank of India has made it much simpler for businesses to move those funds.

Ports, however, are still controlled by archaic port authorities. There are still tariff bodies that govern tariffs in ports and almost artificially keep costs up. And, by and large, the ports are still controlled by bureaucrats and not professionals. Some bureaucrat is actually calling the shots and making decisions, which has some bearing on the regulatory environment.

Lack of competition has impeded progress at ports. In the past you had three or four major gateways into India, but today you have a choice. All are competing with tariffs and services and that’s a new environment that has largely resulted from all of the private investment the government has recently permitted.

There’s also been a relaxation of requirements for foreign direct investment in the retail industry and as a result, there has been a lot more commerce involving all of the big global retailers, including Marks & Spencer, Tesco and Wal-Mart, who are setting up shop in India. They’re bringing their sophistication on the movement of goods and supply chain management which is sparking improvements.

People often speak of India and China in terms of their growing economies. The opportunity for India is that while it has been slow compared to China, when you look at what China has managed to achieve, that’s what India needs to aspire to. China’s throughput at its ports is almost 15 to 17 times that of India. That’s something India can learn from.